According to data firm CoStar Group, national average apartment rents increased 9.4 percent in the second quarter of 2022 compared to the same quarter in 2021. While this is high by historical standards, it is lower than the more than 11% annual increases seen in the previous two quarters, according to CoStar.
The drop also occurs at a time of year when the rental market is typically at its peak. The slowing growth rate in the second quarter is "a really ominous sign," according to Jay Lybik, CoStar's national director of multifamily analytics. "It's fleeing quickly."
According to CoStar, rent growth will continue to slow in the coming months, with the year ending 6.2 percent higher than the previous year. The firm anticipates a 4.9 percent increase in 2023.
Many of the cities that saw some of the country's fastest-growing rents during the pandemic, such as Phoenix, Las Vegas, and Tampa, Fla., are among the rental markets that are slowing the most. According to CoStar, asking rent in Phoenix increased 10.1 percent year on year in the second quarter, down from 18.4 percent in the first quarter of this year and 21.3 percent in the fourth quarter of 2021. Top-tier rents in Palm Beach, Fla., have actually fallen below their 2021 high of $2,704 per month.
Other indicators of rental demand indicate that apartment seekers may be beginning to withdraw from the market. According to real-estate software firm RealPage, the U.S. apartment vacancy rate increased for the first time in 14 months this June, rising to 3.7 percent from 3.5 percent a year ago.
According to CoStar, apartment absorption, a metric that measures demand, is also declining. According to CoStar, the total number of leased apartments increased by 72,000 in the second quarter compared to 266,000 in the second quarter of 2021.
According to analysts, rental markets often begin to moderate when prices become so high that they discourage people from forming new households by moving away from their parents or roommates. According to Piper Sandler analysts in a recent note, rent growth has outpaced income growth in many markets.
"We believe there will be increasing resistance to absolute rent levels, particularly in coastal urban markets where rents are setting new records," according to the note.
Other analysts believe that a record amount of apartment construction will help keep rents under control by saturating markets with more supply over the next year.
According to a June report from Harvard University's Joint Center for Housing Studies, the shortage of affordable rental housing worsened for at least two decades before the pandemic. Rents increased by 16 percent between 2001 and 2019, while renter income increased by only 5 percent, according to the report.
The proportion of American renters who pay 30 percent or more of their income on rent increased by 2.6 percentage points in the first year of the pandemic, according to the report. Almost half of all renters now fall into this category.
Housing is responsible for roughly one-third of inflation. According to the Labor Department, the consumer-price index increased at an annual rate of 9.1 percent in June, the highest rate in more than 40 years. Meanwhile, average hourly earnings increased 5.1 percent in June compared to the same month last year.
The rise in rental prices has coincided with an even more pronounced rise in home-sale prices, which is now beginning to slow slightly.
Single-family home rentals, which have seen record rent growth, are also showing signs of softening. According to housing data firm CoreLogic, May was the first month since January 2021 in which annual rent growth for single-family homes did not exceed the previous month's rate.